Are Electric Cars Worth It?

Electric cars are growing in popularity across North America. According to a 2022 survey conducted by Consumer Reports, more than a third of car buyers are seriously considering an electric vehicle (EV) for their next purchase[1]

Part of this demand can be attributed to financial pressure. Despite the drop in mid-range fuel from an average of $4.64 per gallon a year ago to $3.87 per gallon in February 2023[2], fuel prices continue to concern many drivers. That, coupled with growing inflation and other costs, has consumers tightening their belts[3]. There's also a growing movement of drivers focused on reducing their carbon footprint to better protect our environment. 

Mainstream automakers like Chevrolet, Ford, Kia and Hyundai are all making a range of electric and electrified cars, as are luxury brands like BMW, Mercedes-Benz and Volvo. With more options on the market and a growing cultural and economic push to reduce dependence on gasoline, the question remains: Are electric cars worth it? 

Types of Electric Vehicles

Manufacturers (also referred to as original equipment manufacturers or OEMs) refer to their model lineup as electric or electrified. This helps them separate full electric cars from electrified hybrid and plug-in hybrid vehicles. There are three main types of electrified cars: 

Traditional Hybrids

Hybrids combine a gas engine with a small battery that powers electric motors. These were the first mainstream vehicles with electrified powertrains. 

The Toyota Prius and Honda Accord are two examples of hybrids. Both use engine power and regenerative power recovered during braking to charge a small onboard battery, which in turn powers electric motors. The electric motors work in concert with the gas engine to help reduce your gas mileage.

Hybrids use less fuel because the immediate torque produced by electric motors helps accelerate your car from a dead stop with less fuel use. They can even run on EV power alone for short bursts, usually no more than a few minutes. 

When you compare a hybrid car to its internal combustion engine (ICE) vehicle counterpart, there's a difference ranging from 25 and 50% in fuel economy. The Honda Accord averages 32 mpg in combined highway/city driving, while the same car with a hybrid powertrain averages 48 mpg[4]

Plug-In Hybrid Electric Vehicles (PHEVs)

A plug-in hybrid is the middle step between a fully electric and a hybrid vehicle. The Chevrolet Volt and Toyota Prius Prime were two examples of early PHEVs.

Like a hybrid car, PHEVs combine both an ICE and an electric drivetrain powered by a battery. The battery is larger and more powerful than those found in standard hybrids, which gives them more electric range on battery power alone. 

Many PHEVs allow you to set the drive mode to charging, normal or EV only. Theoretically, you can drive a PHEV all week to work without using any fuel with a short commute. As the name suggests, you can plug in a PHEV overnight to charge it — although this isn't necessary, it can also charge while driving like a normal hybrid. 

Most PHEVs will travel 30-50 miles on pure electric power before running out of charge and having to use the gas engine. 

Full EVs

A fully electric car is one that is powered purely by an electric motor and battery. There is no gas engine, no fuel — only electrons powering electric motors. Tesla is perhaps the most well-known of these. However, before Tesla, there was also the Chevrolet Bolt, the Nissan Leaf and the Mitsubishi i-Miev, among others. These days, many major brands offer at least one fully electric car. 

The range on fully electric cars differs by model. For example, the Lucid Air claims a 516-mile range, the Tesla Model S claims 400 miles and the Kiv EV6 has an estimated 310 miles of range[5].

Sticker Shock: The Initial Cost of EVs vs. Gas-Powered Vehicles

Electrified and full-electric vehicles continue to be more expensive than vehicles operating on conventional internal combustion engines. For example, in the Ford F-150 lineup, the list price for a full-electric F-150 Lightning is $63,474[6] for an entry-level XLT trim level, while the F-150 XLT powered by a conventional gas engine is only $41,800 for the same features. 

Similarly, the list price for a Toyota RAV-4 starts at $27,975 in standard ICE trim, or $30,727 in hybrid trim and $42,340 as a plug-in hybrid[7]. Hyundai's Kona is $22,140 in base trim and $33,550 for the EV version[8].

This additional expense is due to the cost of batteries and electrical components, especially in hybrid and plug-in hybrid powertrains. Full EVs are incurring the cost of recent and ongoing research and development, as well as the battery components and advanced technology on board. 

Some of that cost may be offset by available government subsidies, and some can be offset by the average running cost of the vehicle. We go into further details about current subsidies later in this piece, but it's important to note that these vary widely by state and change often. 

Are EVs More Cost Effective in the Long Run?

They can be. However, that sticker shock might leave you wondering, "why should I get an electric car?".

Electric car pros and cons range from ideological concerns about the environment and emissions or air quality to the enjoyment of silent driving or engine noise. These are all personal choices. But what are some common costs associated with electric cars? The answer to this question depends on your EV, driving style and whether charging the vehicle at home is an option. 

Cost To Run Hybrid vs. Gas 

We already highlighted that the difference in fuel costs for a hybrid versus gas vehicle is anywhere from 25-50%, with an average of around 30%. That means with a fuel cost of $100 a month, you can expect to save about $30 a month on fuel alone by switching to hybrid. 

The real answer is in the long-term math. 

Consider the Honda Accord, at $27,295 for the base gas trim and $31,895 for the most affordable hybrid[9], the difference is $4,600. 

As shown in the figure below, it would take an estimated 115,000 miles to recoup the costs based on the difference in fuel alone*. 

      MPG Gallons used per 1,000 miles Cost at $3.87/gallon
Accord Hybrid $31,895 48 21 $81.00
Accord EX $27,295 32 31 $120.00
Difference $4,600   Difference: ∼$39 per 1,000 miles
        Miles needed to recover cost: 93.510 miles

*For illustrative purposes only

The average American drives 1,000 miles per month[10], which means it would take about 115 months, or just under 12 years, to recover the cost difference between the hybrid and gas version. 

Of course, this doesn't account for the difference in features you might find in hybrid trim levels. OEMs typically add more luxury and convenience features to hybrid vehicles, so it is hard to compare direct differences. Hybrid vehicles are usually not given green plates that allow them to run in high-occupancy vehicle (HOV) lanes and other perks. 

As of March 2023, there are no government rebates for hybrid vehicles in the USA, though they could be added at any time. 

Cost To Run Plug-In Hybrid vs. Gas 

PHEVs are more expensive than their gas-powered counterparts, but the differences in mileage are far larger.

For example, the EPA-adjusted MPG rate for a $40,300[11] Toyota RAV4 Prime with a PHEV drivetrain is 94 mpg[12]. That's three times better than the standard RAV4. The table below shows the difference in cost and mileage of the two*: 

      MPG Gallons used per 1,000 miles Cost at $3.87/gallon
PAV4 Prime PHEV $40,300 94 11 $43.00
RAV4 XLE Premium $32,375 30 33 $128.00
Difference: $7,925   Difference: ∼$85 per 1,000 miles
        Miles needed to recover cost: 93.510 miles

*For illustrative purposes only

The EPA's mileage figure averages out the mileage based on fully charging your vehicle at home. It costs around $3 to fully charge the 18 kWh battery in the RAV4 Prime, which slightly increases the time it takes for the costs of the PHEV to cover fuel expenses. 

The Cost of Electricity vs. Gas

Full electric cars run purely on electricity. The average Tesla driver reports usage of 34 kWh / 100 miles in real-world driving conditions[13]. The average price of electricity in the US is around 17 cents per kWh[14]. That works out to about $57 per 1,000 miles of range. That's less than half the fuel costs you'd incur in a similar-sized gas-powered car. 

By charging at night in off-peak hours, you may be able to save more. You also need to factor in the cost of installing a fast charger and other infrastructure. In general, EVs are becoming cheaper to run versus gas counterparts, but the gap between the two is not as wide as you might expect. 

Government Rebates 

To make EVs even more attractive, the Federal Government offers up to $7,500 in Federal tax credits[15]. These are available for vehicles with a minimum battery capacity of 5 kWh. 

In the financial year 2023, the IRS credit applies only to vehicles that meet the minimum requirements set by the department. Qualified vehicles include any plug-in hybrid or EVs that: 

  • Have a battery capacity of at least 7 kWh hours
  • Have a gross vehicle weight rating under 14,000 pounds
  • Are made by a qualified manufacturer
  • Undergo final assembly in North America

SUVs and pick-up trucks are only eligible if the MSRP is less than $80,000. For all other vehicles, the maximum MSRP is $50,000. 

The rebate itself is $2,917 plus $417 for every kWh over 7 kWh up to $7,500. The RAV4 with its 18 kWh battery in our example above would be eligible for 11 x $417. That's an extra $4,587, which, added to the $2,917 equals $7,504. So basically, any vehicle with an 18 kWh battery or larger is eligible for the full $7,500 rebate. 

That brings the difference in MSRP down to $425, which means it would take only 5,000 miles, or 5 months for the RAV4 Prime to make up for the difference in its price tag*. 

      MPG Gallons used per 1,000 miles Cost at $3.87/gallon
PAV4 Prime PHEV $40,300 94 11 $43.00
RAV4 XLE Premium $32,375 30 33 $128.00
Difference: $7,925   Difference: ∼$85 per 1,000 miles
        Miles needed to recover cost: 93.510 miles

Difference with rebate: $425     Miles needed to recover cost with rebate: 5000 miles

*For illustrative purposes only

Of course, government rebates are always subject to change and you should consult your tax adviser before making any tax-based decisions. 

The Final Mile 

Ultimately, Federal Government tax credits help make EVs and PHEVs less expensive to own over their lifespan than conventional gas-powered cars. There could also be state credits and rebates available in your state which could further offset the upfront costs, though these are subject to change.

Battery replacement costs on electric vehicles can be a significant factor, often running as high as $20,000. In turn, this could negatively impact any potential savings on gasoline. The exact costs of electric vehicles change almost constantly, as do the regulations around these cars, so it's important to do your homework on the vehicles you're interested in buying when it comes time to purchase. 

Buying an EV or PHEV may be able to save you money over the long run as the running costs and tax credits may offset the initial sticker shock. Knowing how much you can save depends on your driving habits, vehicle choice and home state. PNC will finance electric vehicles and hybrids no differently than conventional autos, as long as the program and credit requirements are met.

Are you looking for an auto loan? Consider PNC Bank. We provide a wide variety of finance options for new or used vehicles, including refinancing.